chd-10q_20170930.htm

 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 30, 2017

Commission file number 1-10585

 

CHURCH & DWIGHT CO., INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

13-4996950

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

500 Charles Ewing Boulevard, Ewing, N.J. 08628

(Address of principal executive offices)

Registrant’s telephone number, including area code: (609) 806-1200

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange

on which registered

Common Stock, $1 par value

 

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of October 31, 2017, there were 249,925,342 shares of Common Stock outstanding.

 

 

 


TABLE OF CONTENTS

PART I

 

Item

 

 

 

Page

1.

 

Financial Statements

 

3

 

 

 

 

 

2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21

 

 

 

 

 

3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

28

 

 

 

 

 

4.

 

Controls and Procedures

 

28

PART II

 

1.

 

Legal Proceedings

 

29

 

 

 

 

 

1A.

 

Risk Factors

 

29

 

 

 

 

 

2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

30

 

 

 

 

 

6.

 

Exhibits

 

31

 

 

 

 

 

 

 

 

2


PART I – FINANCIAL INFORMATION

ITEM 1:

FINANCIAL STATEMENTS

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In millions, except per share data)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net Sales

$

967.9

 

 

$

870.7

 

 

$

2,743.1

 

 

$

2,597.1

 

Cost of sales

 

529.4

 

 

 

475.1

 

 

 

1,494.9

 

 

 

1,414.5

 

Gross Profit

 

438.5

 

 

 

395.6

 

 

 

1,248.2

 

 

 

1,182.6

 

Marketing expenses

 

111.9

 

 

 

98.2

 

 

 

333.6

 

 

 

310.9

 

Selling, general and administrative expenses

 

127.9

 

 

 

101.4

 

 

 

396.6

 

 

 

320.9

 

Income from Operations

 

198.7

 

 

 

196.0

 

 

 

518.0

 

 

 

550.8

 

Equity in earnings of affiliates

 

2.7

 

 

 

2.5

 

 

 

7.9

 

 

 

6.7

 

Investment earnings

 

0.8

 

 

 

0.4

 

 

 

1.5

 

 

 

1.1

 

Other income (expense), net

 

1.2

 

 

 

0.3

 

 

 

0.5

 

 

 

(1.5

)

Interest expense

 

(16.4

)

 

 

(6.8

)

 

 

(33.9

)

 

 

(20.7

)

Income before Income Taxes

 

187.0

 

 

 

192.4

 

 

 

494.0

 

 

 

536.4

 

Income taxes

 

53.6

 

 

 

68.4

 

 

 

156.2

 

 

 

187.8

 

Net Income

$

133.4

 

 

$

124.0

 

 

$

337.8

 

 

$

348.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - Basic

 

249.7

 

 

 

258.0

 

 

 

251.2

 

 

 

258.0

 

Weighted average shares outstanding - Diluted

 

255.3

 

 

 

262.7

 

 

 

256.9

 

 

 

262.7

 

Net income per share - Basic

$

0.53

 

 

$

0.48

 

 

$

1.34

 

 

$

1.35

 

Net income per share - Diluted

$

0.52

 

 

$

0.47

 

 

$

1.32

 

 

$

1.33

 

Cash dividends per share

$

0.19

 

 

$

0.177

 

 

$

0.57

 

 

$

0.53

 

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In millions)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net Income

$

133.4

 

 

$

124.0

 

 

$

337.8

 

 

$

348.6

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange translation adjustments

 

7.9

 

 

 

(2.6

)

 

 

22.5

 

 

 

0.8

 

Defined benefit plan adjustments gain (loss)

 

0.0

 

 

 

0.0

 

 

 

11.9

 

 

 

0.0

 

Income (loss) from derivative agreements

 

(2.1

)

 

 

0.8

 

 

 

(6.1

)

 

 

(6.7

)

Other comprehensive income (loss)

 

5.8

 

 

 

(1.8

)

 

 

28.3

 

 

 

(5.9

)

Comprehensive income

$

139.2

 

 

$

122.2

 

 

$

366.1

 

 

$

342.7

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

 

3


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions, except share and per share data)

 

 

September 30,

 

 

December 31,

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

236.5

 

 

$

187.8

 

Accounts receivable, less allowances of $2.4 and $2.1

 

377.9

 

 

 

287.0

 

Inventories

 

336.1

 

 

 

258.2

 

Other current assets

 

52.7

 

 

 

23.8

 

Total Current Assets

 

1,003.2

 

 

 

756.8

 

 

 

 

 

 

 

 

 

Property, Plant and Equipment, Net

 

601.8

 

 

 

588.6

 

Equity Investment in Affiliates

 

8.5

 

 

 

8.5

 

Trade Names and Other Intangibles, Net

 

2,151.9

 

 

 

1,431.8

 

Goodwill

 

2,072.6

 

 

 

1,444.1

 

Other Assets

 

114.8

 

 

 

124.3

 

Total Assets

$

5,952.8

 

 

$

4,354.1

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Short-term borrowings

$

317.2

 

 

$

426.8

 

Accounts payable and accrued expenses

 

634.2

 

 

 

568.9

 

Income taxes payable

 

1.2

 

 

 

6.2

 

Total Current Liabilities

 

952.6

 

 

 

1,001.9

 

 

 

 

 

 

 

 

 

Long-term Debt

 

2,104.1

 

 

 

693.4

 

Deferred Income Taxes

 

753.2

 

 

 

512.2

 

Deferred and Other Long-term Liabilities

 

189.8

 

 

 

168.7

 

Total Liabilities

 

3,999.7

 

 

 

2,376.2

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

Preferred Stock, $1.00 par value, Authorized 2,500,000 shares; none issued

 

0.0

 

 

 

0.0

 

Common Stock, $1.00 par value, Authorized 600,000,000 shares and 292,855,100 shares issued

      as of September 30, 2017

 

292.8

 

 

 

292.8

 

Additional paid-in capital

 

260.5

 

 

 

251.4

 

Retained earnings

 

3,120.6

 

 

 

2,926.0

 

Accumulated other comprehensive loss

 

(35.5

)

 

 

(63.8

)

Common stock in treasury, at cost: 43,139,723 shares in 2017 and 38,892,165 shares in 2016

 

(1,685.3

)

 

 

(1,428.5

)

Total Stockholders' Equity

 

1,953.1

 

 

 

1,977.9

 

Total Liabilities and Stockholders’ Equity

$

5,952.8

 

 

$

4,354.1

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

 

4


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

(In millions)

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2017

 

 

2016

 

Cash Flow From Operating Activities

 

 

 

 

 

 

 

Net Income

$

337.8

 

 

$

348.6

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation expense

 

45.1

 

 

 

45.0

 

Amortization expense

 

46.5

 

 

 

35.2

 

Deferred income taxes

 

32.3

 

 

 

19.8

 

Equity in net earnings of affiliates

 

(7.9

)

 

 

(6.7

)

Distributions from unconsolidated affiliates

 

8.0

 

 

 

7.1

 

Non-cash compensation expense

 

14.9

 

 

 

14.1

 

Non-cash pension settlement charge

 

31.7

 

 

 

0.0

 

Other

 

(0.8

)

 

 

1.1

 

Change in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(40.3

)

 

 

13.2

 

Inventories

 

(33.1

)

 

 

(6.5

)

Other current assets

 

(6.5

)

 

 

3.0

 

Accounts payable and accrued expenses

 

2.4

 

 

 

18.8

 

Income taxes payable

 

(7.4

)

 

 

33.4

 

Excess tax benefit on stock options exercised

 

0.0

 

 

 

(29.4

)

Other operating assets and liabilities, net

 

1.4

 

 

 

(1.7

)

Net Cash Provided By Operating Activities

 

424.1

 

 

 

495.0

 

Cash Flow From Investing Activities

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

(20.9

)

 

 

(28.1

)

Acquisitions

 

(1,260.0

)

 

 

(175.5

)

Other

 

2.6

 

 

 

0.8

 

Net Cash Used In Investing Activities

 

(1,278.3

)

 

 

(202.8

)

Cash Flow From Financing Activities

 

 

 

 

 

 

 

Long-term debt borrowings

 

1,621.3

 

 

 

0.0

 

Long-term debt (repayments)

 

(200.0

)

 

 

0.0

 

Short-term debt borrowings (repayments)

 

(109.6

)

 

 

(127.1

)

Proceeds from stock options exercised

 

37.9

 

 

 

48.0

 

Excess tax benefit on stock options exercised

 

0.0

 

 

 

29.4

 

Payment of cash dividends

 

(143.2

)

 

 

(137.4

)

Purchase of treasury stock

 

(300.0

)

 

 

(200.0

)

Deferred financing and other

 

(17.8

)

 

 

(5.6

)

Net Cash Provided By (Used In) Financing Activities

 

888.6

 

 

 

(392.7

)

Effect of exchange rate changes on cash and cash equivalents

 

14.3

 

 

 

2.6

 

Net Change In Cash and Cash Equivalents

 

48.7

 

 

 

(97.9

)

Cash and Cash Equivalents at Beginning of Period

 

187.8

 

 

 

330.0

 

Cash and Cash Equivalents at End of Period

$

236.5

 

 

$

232.1

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

 

5


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW-CONTINUED

(Unaudited)

(In millions)

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2017

 

 

2016

 

Cash paid during the year for:

 

 

 

 

 

 

 

Interest (net of amounts capitalized)

$

20.4

 

 

$

15.1

 

Income taxes

$

142.4

 

 

$

134.7

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

 

Property, plant and equipment expenditures included in Accounts Payable

$

9.2

 

 

$

7.5

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

 

6


CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2017 and 2016

(Unaudited)

(In millions)

 

 

Number of Shares

 

 

Amounts

 

 

Common

Stock

 

 

Treasury

Stock

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

 

 

Total

Stockholders'

Equity

 

December 31, 2015

 

292.8

 

 

 

(32.8

)

 

$

292.8

 

 

$

230.0

 

 

$

2,650.0

 

 

$

(45.9

)

 

$

(1,103.7

)

 

$

2,023.2

 

Net income

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

348.6

 

 

 

0.0

 

 

 

0.0

 

 

 

348.6

 

Other comprehensive

   income (loss)

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(5.9

)

 

 

0.0

 

 

 

(5.9

)

Cash dividends

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(137.4

)

 

 

0.0

 

 

 

0.0

 

 

 

(137.4

)

Stock purchases

 

0.0

 

 

 

(4.5

)

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(200.0

)

 

 

(200.0

)

Stock based compensation

   expense and stock option plan

   transactions, including related

   income tax benefits of $29.4

 

0.0

 

 

 

2.8

 

 

 

0.0

 

 

 

18.8

 

 

 

0.0

 

 

 

0.0

 

 

 

72.7

 

 

 

91.5

 

September 30, 2016

 

292.8

 

 

 

(34.5

)

 

$

292.8

 

 

$

248.8

 

 

$

2,861.2

 

 

$

(51.8

)

 

$

(1,231.0

)

 

$

2,120.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

292.8

 

 

 

(38.9

)

 

$

292.8

 

 

$

251.4

 

 

$

2,926.0

 

 

$

(63.8

)

 

$

(1,428.5

)

 

$

1,977.9

 

Net income

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

337.8

 

 

 

0.0

 

 

 

0.0

 

 

 

337.8

 

Other comprehensive

   income (loss)

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

28.3

 

 

 

0.0

 

 

 

28.3

 

Cash dividends

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(143.2

)

 

 

0.0

 

 

 

0.0

 

 

 

(143.2

)

Stock purchases

 

0.0

 

 

 

(6.0

)

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

0.0

 

 

 

(300.0

)

 

 

(300.0

)

Stock based compensation

   expense and stock option plan

   transactions

 

0.0

 

 

 

1.8

 

 

 

0.0

 

 

 

9.1

 

 

 

0.0

 

 

 

0.0

 

 

 

43.2

 

 

 

52.3

 

September 30, 2017

 

292.8

 

 

 

(43.1

)

 

$

292.8

 

 

$

260.5

 

 

$

3,120.6

 

 

$

(35.5

)

 

$

(1,685.3

)

 

$

1,953.1

 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

 

7


 

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In millions, except per share data)

 

1.

Basis of Presentation

The condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016, the condensed consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2017 and September 30, 2016, and the condensed consolidated statements of cash flow and stockholders’ equity for the nine months ended September 30, 2017 and September 30, 2016 have been prepared by Church & Dwight Co., Inc. (the “Company”).  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at September 30, 2017 and results of operations and cash flows for all periods presented have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted.  These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the “Form 10-K”).  The results of operations for the period ended September 30, 2017 are not necessarily indicative of the operating results for the full year.

On May 8, 2017, the Company amended its Restated Certificate of Incorporation to increase its authorized shares of common stock to 600,000,000 from 300,000,000 as of December 31, 2016.

In March 2016, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance that makes modifications to how companies account for certain aspects of share-based payment awards to employees, including accounting for income taxes, forfeitures, and statutory withholding requirements, as well as the classification of excess tax benefits in the statement of cash flows.  The Company prospectively adopted the standard in the first quarter of 2017.  The adoption resulted in excess tax benefits of $14.6 or $0.05 per share recorded in the provision for income taxes rather than in the Company’s Stockholders’ Equity section of the Balance Sheet and an increase to both net cash provided by operating activities and net cash used in financing activities of $14.6 million for the nine months ended September 30, 2017. The Company excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of diluted earnings per share, which did not have a material impact on the Company’s diluted earnings per share for the three and nine months ended September 30, 2017.  The Company has also elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period.   

The Company incurred research and development expenses in the third quarter of 2017 and 2016 of $18.0 and $14.5, respectively.  The Company incurred research and development expenses in the first nine months of 2017 and 2016 of $48.1 and $45.0, respectively.  These expenses are included in selling, general and administrative expenses.

 

2.

New Accounting Pronouncements

In August 2017, the FASB issued new accounting guidance, which is intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. These amendments also make targeted improvements to simplify the application of the hedge accounting. The guidance is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact that adoption of the guidance will have on the Company’s consolidated financial position, results of operations and cash flows.

In March 2017, the FASB issued new accounting guidance that requires employers to report the service cost component separate from the other components of net benefit pension and postretirement costs. Under the new guidance, the employer is required to report the service cost component in the same line item or items as other compensation costs arising from services rendered during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside the subtotal of income from operations.  Only the service cost component is eligible for capitalization.  The guidance is effective for annual and interim periods beginning after December 15, 2017, and requires retrospective adoption, with early adoption permitted. The guidance is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.  

8


 

In March, April, and May of 2016, the FASB issued amended guidance that clarifies the principles for recognizing revenue.  The amendments clarify the guidance for identifying performance obligations, licensing arrangements and principal versus agent considerations.  The amendments additionally provide clarification on how to assess collectability, present sales tax, treat noncash consideration, and account for completed and modified contracts at the time of transition.  The guidance is effective for annual periods, including interim reporting periods within those periods, beginning after December 15, 2017.  The new standard will be effective for the Company at the beginning of its first quarter of fiscal year 2018 and the Company expects to apply the new guidance on a modified retrospective basis through a cumulative adjustment to retained earnings.  The guidance is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In February 2016, the FASB issued new lease accounting guidance, requiring lessees to recognize right-of-use lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases, with a term greater than a year. The new guidance also expands the required quantitative and qualitative disclosures surrounding leases. The guidance is effective for annual and interim periods beginning after December 15, 2018, and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the impact that adoption of the guidance will have on the Company’s consolidated financial position, results of operations and cash flows.

There have been no other accounting pronouncements issued but not yet adopted by the Company which are expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.  

 

3.

Inventories

Inventories consist of the following:

 

 

September 30,

 

 

December 31,

 

 

2017

 

 

2016

 

Raw materials and supplies

$

82.7

 

 

$

69.8

 

Work in process

 

34.1

 

 

 

28.8

 

Finished goods

 

219.3

 

 

 

159.6

 

Total

$

336.1

 

 

$

258.2

 

 

4.

Property, Plant and Equipment, Net (“PP&E”)

PP&E consists of the following:

 

September 30,

 

 

December 31,

 

 

2017

 

 

2016

 

Land

$

28.0

 

 

$

25.1

 

Buildings and improvements

 

298.2

 

 

 

284.7

 

Machinery and equipment

 

710.3

 

 

 

680.1

 

Software

 

92.5

 

 

 

90.4

 

Office equipment and other assets

 

65.6

 

 

 

60.8

 

Construction in progress

 

30.8

 

 

 

24.2

 

Gross PP&E

 

1,225.4

 

 

 

1,165.3

 

Less accumulated depreciation and amortization

 

623.6

 

 

 

576.7

 

Net PP&E

$

601.8

 

 

$

588.6

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Depreciation and amortization on PP&E

$

15.4

 

 

$

14.3

 

 

$

45.1

 

 

$

45.0

 

 

9


 

5.

Earnings Per Share (“EPS”)

Basic EPS is calculated based on income available to holders of Common Stock and the weighted average number of shares outstanding during the reported period.  Diluted EPS includes additional dilution from potential Common Stock issuable pursuant to the exercise of outstanding stock options.

The following table sets forth a reconciliation of the weighted average number of shares of Common Stock outstanding to the weighted average number of shares outstanding on a diluted basis:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Weighted average common shares outstanding -  basic

 

249.7

 

 

 

258.0

 

 

 

251.2

 

 

 

258.0

 

Dilutive effect of stock options

 

5.6

 

 

 

4.7

 

 

 

5.7

 

 

 

4.7

 

Weighted average common shares outstanding - diluted

 

255.3

 

 

 

262.7

 

 

 

256.9

 

 

 

262.7

 

Antidilutive stock options outstanding

 

2.5

 

 

 

1.3

 

 

 

2.6

 

 

 

2.0

 

 

6.

Stock Based Compensation Plans

The following table provides a summary of option activity:

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

 

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

Options

 

 

Price

 

 

Term

 

 

Value

 

Outstanding at December 31, 2016

 

16.0

 

 

$

30.06

 

 

 

 

 

 

 

 

 

Granted

 

2.1

 

 

 

48.43

 

 

 

 

 

 

 

 

 

Exercised

 

(1.8

)

 

 

22.32

 

 

 

 

 

 

 

 

 

Cancelled

 

(0.1

)

 

 

43.22

 

 

 

 

 

 

 

 

 

Outstanding at September 30, 2017

 

16.2

 

 

$

33.04

 

 

 

5.8

 

 

$

260.2

 

Exercisable at September 30, 2017

 

10.1

 

 

$

25.40

 

 

 

4.2

 

 

$

231.8

 

 

The following table provides information regarding the intrinsic value of stock options exercised and stock compensation expense related to stock option awards:  

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Intrinsic Value of Stock Options Exercised

$

11.3

 

 

$

34.1

 

 

$

46.0

 

 

$

89.4

 

Stock Compensation Expense Related to Stock Option Awards

$

2.3

 

 

$

1.6

 

 

$

13.0

 

 

$

12.8

 

Issued Stock Options

 

0.3

 

 

 

0.0

 

 

 

2.1

 

 

 

2.0

 

Weighted Average Fair Value of Stock Options issued (per share)

$

38.02

 

 

$

0.0

 

 

$

13.12

 

 

$

7.58

 

Fair Value of Stock Options Issued

$

9.6

 

 

$

0.0

 

 

$

27.0

 

 

$

15.4

 

 

The following table provides a summary of the assumptions used in the valuation of issued stock options:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Risk-free interest rate

 

1.7

%

 

 

-

 

 

 

2.0

%

 

 

1.7

%

Expected life in years

 

4.4

 

 

 

-

 

 

 

6.9

 

 

 

6.8

 

Expected volatility

 

15.5

%

 

 

-

 

 

 

16.7

%

 

 

17.0

%

Dividend yield

 

1.5

%

 

 

-

 

 

 

1.4

%

 

 

1.5

%

 

 

10


 

7.

   Share Repurchases

On November 2, 2016, the Company’s Board of Directors (the “Board”) authorized a new share repurchase program, under which the Company may repurchase up to $500.0 million in shares of Common Stock (the “2016 Share Repurchase Program”).  The 2016 Share Repurchase Program does not have an expiration and replaced the 2015 Share Repurchase Program.  The Company also continued its evergreen share repurchase program, authorized by the Board on January 29, 2014, under which the Company may repurchase, from time to time, Common Stock to reduce or eliminate dilution associated with issuances of Common Stock under the Company’s incentive plans.  

In the nine months ended September 30, 2017, the Company purchased approximately 6.0 million shares of Common Stock for $300.0, of which approximately $125.0 was purchased under the evergreen share repurchase program and $175.0 was purchased under the 2016 Share Repurchase Program.  As a result of the Company’s purchases, there remained $125.0 of share repurchase availability under the 2016 Share Repurchase Program as of September 30, 2017.  The 2016 Share Repurchase Program was replaced in the fourth quarter of 2017.  See Note 20 for further details.           

 

8.

Fair Value Measurements

Fair Value Hierarchy

Accounting guidance on fair value measurements and disclosures establishes a hierarchy that prioritizes the inputs used to measure fair value (generally, assumptions that market participants would use in pricing an asset or liability) based on the quality and reliability of the information provided by the inputs, as follows:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

Fair Values of Other Financial Instruments

The following table presents the carrying amounts and estimated fair values of the Company’s other financial instruments at September 30, 2017 and December 31, 2016:

 

 

 

September 30, 2017

 

 

December 31, 2016

 

 

Input

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

Level

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

Level 1

 

$

85.5

 

 

$

85.5

 

 

$

72.4

 

 

$

72.4

 

Financial Liabilities: